Experts question viability of Amazon drone delivery system

Amazon Chief Executive Officer Jeff Bezos' disclosure on 60 Minutes Sunday that Amazon was studying the use of unmanned aerial vehicles (UAV) to deliver small packages in urban areas was met with skepticism by some supply chain experts.Amazon Prime Air would use drones to deliver packages ordered over the Internet within 30 minutes.
"That is classic Jeff Bezos. He's playing his magic tricks again," Michael Zakkour, a principle with Tompkins International Consulting in Raleigh, N.C., said Monday during a conference call about global sourcing trends hosted by investment bank Stifel Nicolaus. "This is, 'Look at my hand over here while I'm doing something else over there.' I can give 100 reasons why he'll never do home drone delivery."
Amazon has shaken up the retail sector for years and continues to put pressure on brick-and-mortar stores with its free-shipping options, Amazon Prime service that offers free shipping on all purchases for a small upfront fee, Amazon Fresh grocery delivery service, and same-day delivery in a limited number of test markets.
One of the main hurdles Amazon will have to first overcome is getting Federal Aviation Administration approval to use UAVs for commercial purposes within U.S. airspace. Amazon says rules could be in place in time for it to begin Prime Air in 2015, but regulations for complex issues often to take much longer to promulgate than expected. Last month, the FAA produced a roadmap for safely integrating unmanned aircraft into airspace currently used by commercial, military and general aviation aircraft. Regulators are trying to figure out how to allow drones to operate without impacting current operators, reducing existing airspace capacity, or placing airspace users or people and property on the ground at increased risk. Aviation policies and regulations must be developed covering airworthiness of equipment, personnel, and operations and procedures.
Until now, UAVs have primarily been used domestically by the military and U.S. Customs for border-security purposes. Potential commercial uses include aerial photography, surveying land and crops, communication and broadcasting, monitoring forest fires and environmental conditions, disaster response, cargo transport, advertising, and protecting critical infrastructure.
In an email to American Shipper after the conference call, Zakkour said liability, crime and privacy issues will also constrain Amazon from deploying a drone fleet.
Drones raise the specter of big government and corporations quietly spying on the populace from the sky. FAA says part of its rulemaking process will address privacy concerns, but Zakkour and others predict there will be a big public backlash against domestic use of drones.
Amazon also has to be concerned about liability if one of its rotary UAV's malfunctions and injures or kills someone with its blades, Zakkour said. The retailer will also find it difficult to navigate in urban environments with tall buildings and must also worry about people trying to steal or shoot down the vehicles, he said. Others note that questions about who owns data captured by drones must also be resolved.A Chinese parcel carrier is already testing drone deliveries, according to a report by CNET.
Drone deliveries offer the potential to address congestion, vehicle emissions, and driver shortages in an era of growing Internet shopping and home delivery, Sandeep Kar, global director of commercial vehicle research at Frost & Sullivan, said in a commentary pushed to reporters by the market research firm. Amazon Prime Air, if it were to become successful, could impact third-party logistics providers and carriers such as FedEx and UPS, which might "lose a portion of the rapidly growing low-weight, time-critical urban delivery business, which Amazon could vertically integrate, unless these companies offer similar services to Amazon or other retailers at a cost and value proposition that makes it more attractive for businesses to engage with them."
Amazon has a small fleet of its own delivery trucks for Amazon Fresh, which is offered in Seattle and Los Angeles.
Drone deliveries hold more promise in closed-loop industrial environments, Kar added.
"The real and meaningful application of this technology lies in intra-factory/intra-company logistics and deliveries, and also in the automotive original equipment market and aftermarket, where it can bring about revolutionary changes in efficiencies, cost and time effectiveness," he said.
Amazon's foray into drones is further testament to the rapid growth of e-commerce and how retailers are trying to offer convenient shopping experience across all physical and digital sales channels. As part of that strategy, retailers are putting enormous time and effort into figuring out how to use stores as fulfillment centers and optimize home delivery in a way that makes economic sense. Walmart, for example, is kicking around the idea of crowd sourcing — inviting shoppers who sign up with a special smartphone app to make deliveries on their way home in exchange for a fee or a discount on their purchases. Walmart is also testing a same-day delivery service called Walmart To Go in five metro areas using its own delivery trucks, according to Reuters.
Bezos' purchase of the Washington Post earlier this year exemplifies how Amazon's founder tries to divert attention from what he is really up to, Zakkour said on the Stifel call. "Why did Amazon buy the Washington Post? Is it because Bezos is a great believer in a free and vigorous press and wants to bring back print? No. He bought the Washington Post because newspapers have one of the most highly developed delivery and logistics infrastructures" for same day delivery, he said.
(Note: Amazon was not involved in the deal. Bezos bought the newspaper with his own money.)
Zakkour said Amazon is similarly using grocery delivery as a loss leader to get other profitable merchandise into homes.
"The only business with smaller margins than the grocery business is online home delivery of groceries," he said.
Amazon Fresh offers free delivery for orders above $50 and charges $9.99 for lesser orders.
The online retailer will also deliver books, Kindles and other merchandise along with groceries, and it is using grocery delivery as a channel for selling other products, Zakkour said.